VC dealmaking in climate tech slows dramatically

·2 min read

VC funding for climate tech startups has slowed to its lowest pace in nearly three years, a worrying sign for an industry which had, until recently, brushed off the tech market downturn

In Q1, climate tech startups raised $5.7 billion across 279 VC deals, according to PitchBook data. That's a 36% decline in deal value and a 31% decline in deal count from the previous quarter. From its peak in Q3 2021, quarterly deal value has fallen more than 50%.   
The data, though still early, sends a concerning signal to an industry critical to developing technologies for the energy transition. The world faces a catastrophic warming threshold within the next decade, UN scientists warned in a report this month. The report, which estimated that the Earth will exceed a 1.5 degrees Celsius (2.7 degrees Fahrenheit) warming target by the early 2030s, urged "deep, rapid and immediate action."

"I'm a little bit worried," said Seonghoon Woo, co-founder of clean energy startup Amogy. Woo said that raising their latest round, a $139 million Series B-1 led by SK Innovation, took longer than six months. "Certainly, it was hard because the market wasn't looking great, and that still is the case."

Climate tech was one of the most resilient segments of the private market last year. Carbon and emissions tech startups raised $13.8 billion in VC deals compared to $14.1 billion the previous year, a dip of just 2%, according to PitchBook data. That was despite a bear market that stalled VC funding across nearly every industry. 

"I wouldn't be surprised if the funding was slowing down compared to where it was last year, just because of the general broader slowdown in VC funding," said Wes Selke, a partner at Better Ventures.   

But there are still plenty of reasons for optimism. "There's a lot of momentum still in climate tech, and you have the tailwinds of industrial policy, like the IRA," Selke said. 

The Inflation Reduction Act, passed in August 2022, was a boon for the industry, especially for recipients of the IRA's various green subsidies, such as carbon capture technologies and green hydrogen production. 

"Whilst it's still a little too early to have seen much of the IRA's impacts, its size and scope are enough that it will be one of the dominant drivers of US climate tech investment for years to come," said PitchBook analyst John MacDonough. 

Correction: A previous version of this article misspelled the last name of Wes Selke, a partner at Better Ventures. His name is Wes Selke, not Selle. (April 11, 2023).

Featured image by Mny-Jhee/Shutterstock

This article originally appeared on PitchBook News